Driving Residential Energy Improvements – Homeowner Challenges (Part 2 of a 3-Part Series)

Why do most homeowners find it challenging to perform energy upgrades confidently? Why is it difficult to buy higher efficiency equipment, appliances, and incorporate conservation in our lifestyle? After all, many governmental incentive programs have been created to target homeowners in the past several years…

In part 1 of the series, we discussed the four categories of opportunities that can drive residential energy improvements. There is some momentum building in each of those categories except the fourth (homeowners who are not in the market to perform upgrades) through federal, state, local, utility, and private sector rebates. But even with the American Recovery and Reinvestment Act (ARRA), and efforts to move the residential energy agenda forward, the process of implementing energy upgrades in existing homes has been haphazard from state to state.

While outreach to homeowners has been effective in increasing awareness and desire to become more energy efficient, the efforts to transition building professionals to become more energy proficient has had limited success. Often, contractors, and specialty trades-people who consult to homeowners are specialized in their area of expertise (plumbing, electrical, insulation, masonry, etc) and unaware of how all the systems in a house interact dynamically; for example, how a modification in one area, such as lighting, quantitatively affects other areas such as heating, in energy costs and comfort levels.

This type of “whole-building approach” has been used in the commercial realm for many years by energy engineers; there are also several governmental and institutional initiatives to help develop a home performance contracting industry (parallel to the commercial energy performance contracting industry). These programs use sophisticated field training courses, energy analysis software and equipment/instrumentation that lead to certifications for professional energy auditing/inspecting/rating. However, because of the scale and economics of the residential real estate market, this process is still largely undefined and disconnected across market segments.

This fragmentation has lead to vastly differing and confusing procedures in residential energy projects. Home owners, buyers and sellers who are not do-it-yourselfers and are seeking professional help, don’t know where to turn to develop an energy efficiency game plan, namely:

  • Obtaining a simple assessment of the existing house and arriving at the appropriate and cost-effective technologies;
  • Identifying the correct products, vendors, and associated costs;
  • Retaining reputable contractors and trades-people familiar with implementing the technologies affordably;
  • Obtaining financing to mobilize the project; Verifying that the energy upgrade was performed properly (quality assurance).

Adding to the confusion, the inspection, financing, appraisal, insurance and other residential related sectors have different rating systems and evaluation procedures. For example, a home’s energy rating system value (HERS value), determined by a HERS certified energy auditor, does not play a factor in a home’s insurance policy. Also, whereas the HERS value is required to obtain an energy efficient mortgage (EEM), and may contribute toward the sale of a home, most professionals and the public are not familiar with EEMs, or what qualifies a home as energy-efficient (Did I mention it is all confusing? This will be covered in Part 3 of the series). If a home owner, buyer or seller is a do-it-yourselfer, they likely will not qualify for many of the assistance programs, since many require that energy upgrades be performed by certified and registered contractors.

Here is another double-edged sword for those selling their home. While some localities are beginning to mandate energy audits in real estate sales, energy audits currently do not play an important role in the banking industry for establishing a home’s worth (market value). According to Jeffrey Olsen from Pennsylvania Department of Environmental Protection, “most audits, including phase I and II environmental studies are required by the lender as a means of avoiding liability. With some exceptions such as termite and radon inspections, the cost of audits rests with the buyer. Because an energy audit would significantly benefit the buyer, this audit would probably be their responsibility. Because the audits would probably not indicate situations that would be unhealthy or structurally unsafe, there would not be any regulatory obligation for the seller to pay for the fixes. The cost for a residential energy audit can start at around $400.00 for an average family dwelling and increase dramatically with the size of the house. Audits for as much as $2,000 to $3,000 would not be uncommon and depending on the original efficiency of the home, may not provide enough energy savings opportunities for the buyer to be cost efficient. While the intent of the audit is to identify areas where efficiency upgrades can save money, many potential buyers might use them as a measuring device to avoid certain homes that are more energy inefficient. This could result in reduced sales to older homes in older neighborhoods.”

Part 3 of this series will examine the status of the home performance contracting industry, green designations for real estate professionals, the types of financial assistance, incentive and loan programs, and possible free-market approaches to drive the residential energy market.